The “other economy”: Everything stems from whether interest rates are higher than growth rates

Much of what set apart the economy of the 1970s , ’80s, ’90s and 2000s (and which may also be the economy of the 2020s) from the economy of the 2010s stems from the fact that interest rates were on average higher than growth rates and became higher than growth rates in the second half of growth periods. Compared to the situation in the 2010s when interest rates were lower than growth rates, in this “normal” economy with above-growth interest rates: Asset price bubbles and overindebtedness end in financial crises with the collapse of bubbles and the necessary deleveraging; Fiscal policies can not be permanently expansionary due to the public debt sustainability constraint; Savers and investors have significantly less incentive to take risk. These characteristics of the economy of the 1970s to 2000s may now return.